Koenig v. Dungey

[Cite as Koenig v. Dungey, 2014-Ohio-4646.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
ELAINE L. KOENIG, : APPEAL NO. C-140111
TRIAL NO. A-1203492
Plaintiff, :
and :
ELANIE L. KOENIG, O P I N I O N.
ADMINISTRATOR OF THE ESTATE :
OF PAUL F. KOENIG,
:
Plaintiff-Appellee,
:
vs.
:
CYNTHIA C. DUNGEY, DIRECTOR OF
OHIO DEPARTMENT OF JOB AND :
FAMILY SERVICES,
:
and
:
OHIO DEPARTMENT OF JOB AND
FAMILY SERVICES, :
Defendants-Appellants. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: October 22, 2014
Beckman Weil Shepardson, LLC, Janet E. Pecquet and Ashley Shannon Burke, for
Plaintiff-Appellee,
Michael DeWine, Ohio Attorney General, and Rebecca L. Thomas, Assistant
Attorney General, for Defendants-Appellants.
Please note: this case has been removed from the accelerated calendar.
OHIO FIRST DISTRICT COURT OF APPEALS
FISCHER, Judge.
{¶1} Defendants-appellants the Ohio Department of Job and Family
Services and Cynthia Dungey, in her official capacity as director of the Ohio
Department of Job and Family Services, are charged with administering the federal
Medicaid program in Ohio. Plaintiff-appellee Elaine Koenig, as the administrator of
her late-husband’s estate, sued defendants after the Ohio Department of Job and
Family Services upheld an agency determination imposing a period of restricted
coverage on her husband’s Medicaid benefits on the basis that Mrs. Koenig had
improperly transferred resources to purchase an annuity.
{¶2} Following Hughes v. McCarthy, 734 F.3d 473 (6th Cir.2013), we
determine that Mrs. Koenig’s annuity purchase with funds in excess of her
community spouse resource allowance, after her husband’s institutionalization, but
before his Medicaid eligibility determination, was not an improper transfer for
purposes of qualifying for Medicaid. We also determine that because the issue of
whether Mrs. Koenig’s annuity was an improper transfer for failing to meet the
requirements of Ohio Adm.Code 5160:1-3-22.8 was never raised at the agency level,
this court cannot conduct a meaningful review of that argument on appeal.
Therefore, we affirm the decision of the trial court.
Federal Medicaid Statutes and Ohio’s Regulations
{¶3} Medicaid is a federally-established program developed by Congress to
provide state and federal funding to those individuals who cannot afford their
medical care. See Title XIX of the Social Security Act, 79 Stat. 286 (1965). The state
of Ohio, as a participant in the Medicaid program, develops its own rules for
implementing the program, which must be consistent with the federal Medicaid
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statutes. See Wisconsin Dept. of Health & Family Servs. v. Blumer, 534 U.S. 473,
480, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002).
{¶4} Congress has sought to protect married individuals living in the
community (“community spouses”) from financial hardship caused by their spouses’
institutionalization in a nursing-care facility (“institutionalized spouses”) by allowing
community spouses to maintain some assets—the Community Spouse Resource
Allowance—while still permitting institutionalized spouses to receive Medicaid. See
42 U.S.C. 1396r-5; Ohio Adm.Code 5160:1-3-36.1; Blumer at 480. In calculating the
Community Spouse Resource Allowance (“CSRA”), a state agency first examines a
couple’s total resources as of the beginning of institutionalization for the
institutionalized spouse, divides that total by two, and then subjects that number to a
minimum and maximum amount, adjusted for inflation, which will determine the
CSRA. See Ohio Adm.Code 5160:1-3-36.1(C).
{¶5} The CSRA cannot be counted as an available resource in determining
an institutionalized spouse’s Medicaid eligibility. See id. However, if a couple’s
resources exceed the CSRA amount, after setting aside a minimal amount for the
institutionalized spouse, then those resources must be disposed of in order for the
institutionalized spouse to qualify for Medicaid. See Blumer at 482-483, citing 42
U.S.C. 1396r-5(c)(2); Ohio Adm.Code 5160:1-3-36.1(C).
{¶6} Even if a state agency deems an institutionalized spouse Medicaid-
eligible, the agency can impose a period of restricted coverage on the
institutionalized spouse, meaning that the agency will withhold Medicaid payments
to the nursing-care facility, if the agency determines that an “improper transfer” of
the couple’s resources occurred. See 42 U.S.C. 1396p; Ohio Adm.Code 5160:1-3-07.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶7} The treatment of resource transfers for Medicaid purposes is governed
by Ohio Adm.Code 5160:1-3-07. An improper transfer occurs, in relevant part, when
an individual applying for Medicaid, or that individual’s spouse, disposes of a
resource during the look-back period for “less than fair market value.” See Ohio
Adm.Code 5160:1-3-07(B)(3), (5), (7), (9), and (10). Generally, in a case where a
Medicaid applicant is institutionalized at the time of the application, the look-back
period begins 60 months prior to the application date. See id.{¶8} Even if an individual or spouse transfers a resource for less than fair
market value, Ohio Adm.Code 5160:1-3-07 provides that where the transfer occurs
for the “sole benefit” of the spouse, the transfer will not be improper. See Ohio
Adm.Code 5160:1-3-07(E)(2)(a)-(b); 42 U.S.C. 1396p(c)(2)(B)(i)-(ii). “In order for a
transfer to be considered for the sole benefit of the spouse[,] * * * the entity that
receives or holds the transferred resource must * * * be required to expend all of the
transferred resources for the benefit of the individual during that individual’s life
expectancy.” Ohio Adm.Code 5160:1-3-07(F)(1).
{¶9} Additionally, other provisions govern transfers of resources between
spouses. 42 U.S.C. 1396r-5(f)(1) permits an institutionalized spouse to transfer an
amount equal to the CSRA “but only to the extent the resources of the
institutionalized spouse are transferred to (or for the sole benefit of) the community
spouse * * * as soon as practicable after the date of the initial determination of
eligibility.” Ohio Adm.Code 5160:1-3-07(G) provides that “[a]ny amount of a
couple’s resources exceeding the CSRA may not”: (1) “be transferred to the
community spouse or to another for the sole benefit of the community spouse unless
permitted in a hearing decision”; or (2) “be converted to another form for the
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OHIO FIRST DISTRICT COURT OF APPEALS
purpose of generating additional income for the community spouse unless permitted
in a hearing decision[.]” Ohio Adm.Code 5160:1-3-07(G)(2)-(3).
{¶10} Effective in 2006 with Congress’s passage of the Deficit Reduction Act
of 2005, Pub.L.No. 109-171, 120 Stat. 4, 62-64, the purchase of an annuity is
considered an improper transfer, unless certain criteria are met. See Ohio Adm.Code
5160:1-3-22.8; 42 U.S.C. 1396p(c)(1)(F)-(G). In relevant part, the annuity must
name the state of Ohio as the first remainder beneficiary “for the total amount of
medical assistance furnished to the individual” or name the state of Ohio as second
remainder beneficiary after the individual’s spouse or minor or disabled child. Ohio
Adm.Code 5160:1-3-22.8(C)(1). The annuity must also be “irrevocable, non-
assignable, and actuarially sound * * * and provide[] for payments in equal amounts
during the term of the annuity with no deferral and no balloon payments made.”
Ohio Adm.Code 5160:1-3-22.8(C)(3).
Mrs. Koenig’s Annuity Purchase
{¶11} Paul Koenig entered a nursing-care facility on March 15, 2011. He
later applied for Medicaid benefits with Hamilton County Job and Family Services
(“HCJFS”) on October 18, 2011. At the time of Mr. Koenig’s institutionalization, Mr.
and Mrs. Koenig had countable Medicaid resources of approximately $349,806. The
agency determined that the CSRA for Mrs. Koenig was $109,560.
{¶12} On October 26, 2011, Mrs. Koenig purchased a single-premium
annuity for $121,783.56. The annuity provided immediate, monthly payments to
Mrs. Koenig for five years—within her actuarial life expectancy at the time of nine
and one-half years. The annuity contract was irrevocable, nonassignable, and did
not contain a balloon payment or deferral. The annuity contract named the state of
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OHIO FIRST DISTRICT COURT OF APPEALS
Ohio as the first remainder beneficiary “up to amount of benefits received by Elaine
Koenig.”
{¶13} The initial HCJFS caseworker responsible for Mr. Koenig’s Medicaid
application approved his application, but instituted a period of restricted coverage
from December 2011 through July 2013. The caseworker determined that the
annuity purchase constituted an improper transfer of resources to Mrs. Koenig under
former Ohio Adm.Code 5101:1-39-07(C), renumbered as Ohio Adm.Code 5101:1-3-
07(C).
{¶14} Mr. Koenig requested a state hearing with the Ohio Department of Job
and Family Services (“ODJFS”) under R.C. 5101.35(B). The hearing officer upheld
the determination of the HCJFS caseworker. Mr. Koenig then sought an
administrative appeal within ODJFS under R.C. 5101.35(C). Prior to the release of
the administrative decision upholding the state hearing decision, Mr. Koenig passed
away.
{¶15} Mrs. Koenig, on behalf of herself and as the administrator of her late-
husband’s estate, filed an administrative appeal of ODJFS’s decision under R.C.
119.12 and 5101.35 with the Hamilton County Court of Common Pleas. She also filed
claims for declaratory and injunctive relief and claims under 42 U.S.C. 1983. The
trial court granted ODJFS’s motion to dismiss the claims of Mrs. Koenig in her
personal capacity, as well as the declaratory- and injunctive-relief and the 1983
claims brought by Mr. Koenig’s estate. The administrative appeal on behalf of Mr.
Koenig proceeded with briefing on the merits.
{¶16} In its trial-court brief seeking to uphold the hearing officers’ decisions,
ODJFS argued that Mrs. Koenig’s annuity purchase was an improper transfer.
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OHIO FIRST DISTRICT COURT OF APPEALS
ODJFS also argued, for the first time, that Mrs. Koenig failed to comply with Ohio
Adm.Code 5101:1-3-22.8(C), which requires that an annuity name the state as either
a first beneficiary or a second beneficiary for the total amount of medical assistance
paid on behalf of the institutionalized spouse.
{¶17} The trial court found that ODJFS waived its argument that Mrs.
Koenig’s annuity failed to comply with Ohio Adm.Code 5101:1-3-22.8(C), because
that argument was not made part of the underlying administrative record. The trial
court nevertheless determined that Mrs. Koenig’s annuity fully complied with Ohio
Adm.Code 5101:1-3-22.8(C), as well as Ohio Adm.Code 5160:1-3-07(E)(2)(a)-(b)
governing transfers for the “sole benefit” of spouses. The trial court concluded that
ODJFS erred when it treated Mrs. Koenig’s purchase of the annuity as an improper
transfer and erred in imposing a period of restricted coverage on Mr. Koenig’s
Medicaid payments. ODJFS now appeals the trial court’s decision.
Standard of Review
{¶18} R.C. 5101.35(E) permits an appeal of an administrative decision issued
by ODJFS to the court of common pleas under R.C. 119.12. The trial court must
uphold the agency decision if it is supported by “reliable, probative, and substantial
evidence and is in accordance with law.” R.C. 119.12. When an agency appeals a trial
court’s decision to a court of appeals under R.C. 119.12, the appeal “shall be taken on
questions of law relating to the constitutionality, construction, or interpretation of
statutes and rules of the agency, and, in the appeal, the court may also review and
determine the correctness of the judgment of the court of common pleas that the
order of the agency is not supported by any reliable, probative, and substantial
evidence in the entire record.” See Miller v. Dept. of Indus. Relations, 17 Ohio St.3d
7OHIO FIRST DISTRICT COURT OF APPEALS
226, 479 N.E.2d 254 (1985). An appellate court reviews questions of law de novo;
however, a court must defer to an administrative agency’s construction of the
statutes and rules it enforces unless such construction is unreasonable. Weaver v.
Ohio Dept. of Job & Family Servs., 153 Ohio App.3d 331, 2003-Ohio-3827, 794
N.E.2d 92, ¶ 3, 12 (1st Dist.).
Preeligibility Purchase of an Annuity is not an Improper Transfer
{¶19} In its first assignment of error, ODJFS argues that the trial court erred
in reversing its determination that the annuity purchase by Mrs. Koenig was an
improper transfer. ODJFS argues that Mrs. Koenig could not use funds in excess of
her CSRA to purchase the annuity without seeking agency approval in a hearing. See
Ohio Adm.Code 5160:1-3-07(G). ODJFS further argues that the annuity is not for
the “sole benefit” of Mrs. Koenig as the community spouse. See Ohio Adm.Code
5160:1-3-07(F)(1); 42 U.S.C. 1396p(c)(2)(B).
{¶20} ODJFS’s arguments have been considered and rejected by Hughes,
734 F.3d 473. In Hughes, the United States Court of Appeals for the Sixth Circuit
considered whether a community spouse’s transfer of resources to purchase an
annuity after institutionalization, but preeligibility, constituted an improper transfer
of resources. In that case, Mr. Hughes purchased an annuity four years after his wife
had entered a nursing home, and the annuity provided income to Mr. Hughes for
nine years and seven months, his actuarial life expectancy. The annuity named Mrs.
Hughes as the first remainder beneficiary, and the state of Ohio as the second
remainder beneficiary “for the total amount of medical assistance furnished to Mrs.
Hughes.” Id. at 477. Three months after Mr. Hughes had purchased his annuity,
Mrs. Hughes applied for Medicaid.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶21} The Ohio agency determined that Mrs. Hughes was eligible for
Medicaid, but imposed a period of restricted coverage because of Mr. Hughes’s
annuity purchase. In temporarily withholding Medicaid funds, the Ohio agency
relied on 42 U.S.C. 1396r-5(f)(1), which provides that an institutionalized spouse
may transfer to a community spouse an amount equal to the CSRA, without penalty.
Thus, the Ohio agency in Hughes argued that a transfer of resources for the benefit of
the community spouse in excess of the CSRA after institutionalization is improper.
{¶22} The Sixth Circuit harmonized the unlimited-transfer provision of 42
U.S.C. 1396p(c)(2)(B)(i) with the CSRA-transfer cap in 42 U.S.C. 1396r-5(f)(1) by
reasoning that 42 U.S.C. 1396r-5(f)(1) and 42 U.S.C. 1396p(c)(2)(B)(i) operated “at
distinct temporal periods.” Hughes at 480, relying on Morris v. Oklahoma Dept. of
Human Servs., 685 F.3d 925, 935 (10th Cir.2012). The Sixth Circuit reasoned that,
prior to a determination of Medicaid eligibility, 42 U.S.C. 1396p(c)(2)(B)(i) permits
unlimited transfers for the benefit of a spouse. Hughes at 480.
{¶23} The Sixth Circuit further determined that Mr. Hughes’s annuity
purchase was for his “sole benefit” under 42 U.S.C. 1396p(c)(2)(B), despite the
presence of contingent beneficiaries. Although the federal statute does not define
“sole benefit,” the Sixth Circuit relied in part on Ohio’s implementing regulation in
determining that “so long as the financial instrument is actuarially sound and
payments are made only to the spouse during his life[,] the transfer by Mr. Hughes
was for his sole benefit.” Id. at 481-82, relying on former Ohio Adm.Code 5101:1-39-
07(F)(1). The Sixth Circuit concluded that the district court had erred in
determining that the Ohio agency could impose restricted coverage on Mrs. Hughes
because of the annuity purchase.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶24} Just as the community spouse in Hughes had transferred community
resources to purchase an annuity after his spouse’s institutionalization, but
preeligibility, Mrs. Koenig purchased the annuity after her husband’s
institutionalization, but before Medicaid eligibility had been determined. Thus,
ODJFS’s reliance on the CSRA-hearing requirement in Ohio Adm.Code 5160:1-3-
07(G) is misplaced. Following the reasoning of Hughes, the CSRA-transfer cap does
not apply until after a determination of Medicaid eligibility. Here, the transfer by
Mrs. Koenig occurred preeligibility, so the unlimited-transfer provision in Ohio
Adm.Code 5160:1-3-07(F) controls. Moreover, Mrs. Koenig’s annuity is actuarially
sound and only benefits Mrs. Koenig during her life, just as the annuity in Hughes.
Thus, the annuity constitutes a transfer of resources for Mrs. Koenig’s sole benefit.
See Ohio Adm.Code 5160:1-3-07(F)(1); 42 U.S.C. 1396p(c)(2)(B).
{¶25} Therefore, we determine that Mrs. Koenig’s annuity purchase with
funds in excess of the CSRA was not an improper transfer when the transfer occurred
after institutionalization, but preeligibility.
{¶26} We note that the trial court and Mrs. Koenig rely heavily on a decision
from this court, Rorick v. Ohio Dept. of Job and Family Servs., 1st Dist. Hamilton
No. C-090627, 2010-Ohio-5571. Rorick, which predated the Sixth Circuit’s decision
in Hughes, determined that a community spouse’s purchase of an annuity, which
complied with former Ohio Adm.Code 5101:1-39-22.8 (renumbered as Ohio
Adm.Code 5160:1-3-22.8), was not an improper transfer even though the community
spouse used resources above the CSRA limit. Id. at ¶ 16. In reaching its conclusion,
the Rorick court relied on case law interpreting Medicaid countable-resource
statutes. Id. at ¶ 11, 20, citing Vieth v. Ohio Dept. of Job and Family Servs., 10th
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OHIO FIRST DISTRICT COURT OF APPEALS
Dist. Franklin No. 08AP-635, 2009-Ohio-3748; James v. Richman, 547 F.3d 214 (3d
Cir.2008); Weatherbee v. Richman, 595 F.Supp.2d 607 (W.D.Pa.2009). In this case,
ODJFS does not contend that the annuity purchased by Mrs. Koenig was a countable
resource for purposes of determining Mr. Koenig’s Medicaid eligibility; therefore, the
reasoning of Rorick does not control here.
{¶27} We overrule ODJFS’s first assignment of error.
The Annuity Requirements in Ohio Adm.Code 5160:1-3-22.8
{¶28} In its second assignment of error, ODJFS contends that the trial court
erred in determining that it had waived the issue of whether Mrs. Koenig’s annuity
was an improper transfer for failing to meet the requirements of Ohio Adm.Code
5160:1-3-22.8. ODJFS contends that Mrs. Koenig’s annuity contract named the state
of Ohio as second remainder beneficiary “up to amount of benefits received by Elaine
Koenig” when the Medicaid regulation requires that the annuity name the state as a
remainder beneficiary for the amount of benefits paid to the Medicaid applicant—
here Mr. Koenig. See Ohio Adm.Code 5160:1-3-22.8(C)(1); 42 U.S.C. 1396p(c)(1)(F).
{¶29} ODJFS failed to raise Mrs. Koenig’s technical noncompliance with the
annuity requirements as a basis for its decisions at the administrative level. Without
the benefit of a developed administrative record, this court cannot conduct a
meaningful review of ODJFS’s argument in this appeal. We determine that it would
be unfair to reinstate ODJFS’s period of restricted coverage on the basis of Ohio
Adm.Code 5160:1-3-22.8(C)(1), when that rule was not invoked by the agency at the
administrative level. Therefore, we overrule ODJFS’s second assignment of error.
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OHIO FIRST DISTRICT COURT OF APPEALS
Conclusion
{¶30} In conclusion, because we determine that the trial court properly
found that ODJFS erred when it treated the purchase of Mrs. Koenig’s annuity as an
improper transfer for Medicaid purposes, and that ODJFS erred when it imposed a
period of restricted coverage on Mr. Koenig’s Medicaid payments, we affirm the
judgment of the trial court.
Judgment affirmed.
DINKELACKER, P.J., and DEWINE, J., concur.
Please note:
The court has recorded its own entry on the date of the release of this opinion.
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